Central banks:: Independence, accountability, credibility

In the 1990s, it became widely accepted that more independent central banks would conduct monetary policy in a way that promotes financial stability and economic growth. Theoretical arguments in favor of central banks' independence were reflected in practical steps. An increasing number of central banks in both advanced and developing economies gained a higher degree of independence in pursuing monetary policy. With the advent of the central banks' independence, however, their accountability also emerged as a concern. This article discusses the relationship between central banks' independence, accountability and credibility. The first part reviews theoretical and empirical arguments in support of central bank independence, as well as some criticism of these arguments. The second part discusses the importance of central bank accountability vis-a-vis the general public. In the third part, the article turns to some specific problems of central bank independence and accountability in transition economies, and argues that instrumental but not goal independence of central banks is appropriate for these economies.